What started as a week of gloom and doom in the markets, ended with a positive note from the U.S. consumer and a cooling in rhetoric on the US-China trade war. It was supposed to be a quiet week, when central bankers are on holiday and economic data on the light side. But from the way the last exchanges occurred, the US-China trade war is far from over. China is growing more vocal and its tack is changing.

The Federal Reserve will release the FOMC minutes of the last meeting later this week and the Fed holds its annual symposium for U.S. and global central bankers at Jackson Hole conference, titled this year "Challenges for Monetary Policy.”

Meanwhile, the British pound (GBP) was the strongest currency last week, in a week that was dominated by swings in indices.

Reconciling Positive Retail Data with Market Turmoil

The data highlight of the week was the 1.0% rise in US retail sales (control group) compared to +0.4% expected. That makes the first seven months of 2019 the strongest seven-month period for the series since 1992. The strength in retail was underscored by quarterly results and commentary from Wal-Mart. That data is in wild contrast to financial market moves this month. Treasury yields fell to fresh lows with 10-year notes breaking 1.50% and 30-year bonds falling below 2%. Both have fallen 50 basis points since the start of the month – a sign of extreme stress.

How do we reconcile robust consumer data with violent market moves? For one, the economic data is backward looking while the market is looking ahead. This is especially the case for a late-cycle economy, when slowdown in manufacturing production, factory capacity and supply orders preceded changes in labor markets. Said differently, "labor markets are always the last to know" -- They're never described as leading indicators. It's also looking abroad to the Eurozone, which is increasingly worrisome. On Thursday, the ECB's Rehn told the Wall Street Journal that at this point the central bank needs to beat expectations. The market is now pricing a better-than-even chance of a 20 basis point cut (rather than 10 bps).

Here are some notable market notes from Ashraf Laidi:

US indices posted the 3rd straight weekly decline, the longest since May.

US 10 year yield fell 11% on the week, the biggest decline since summer 2012.

The Cboe Volatility Index (VIX) remains well above its 200-day moving average of 17.00 and all three mean weekly moving averages.